Welcome! Please Log In
Search
Closed-end fund
A type of mutual fund. Like ETFs, closed-end funds differ from open-end mutual funds in that they trade throughout the day over an exchange. Unlike ETFs, however, they have no mechanism to prevent them from trading at substantial premiums or discounts to their net asset values.
Commission
The fee you pay a broker to buy or sell a security, such as a stock or an ETF, for your account. The charge is typically assessed on a per-trade basis. You do not need to pay a commission to buy or sell no-load, open-end mutual funds, giving them a cost-advantage over ETFs for investors who plan to invest regular sums of money or who trade frequently.
Creation Unit
The smallest block of ETF shares that can be bought or sold from the fund company at net asset value, usually 50,000. These are only bought and sold "in-kind." For example, when you sell one, you receive a portfolio of securities that approximates the ETF's holdings, not cash. Creation units' size means that only market makers and institutions can afford to buy or sell them. All other investors can buy or sell ETF shares in any size lot at the market price, rather than at NAV, over an exchange.
DIAMONDs
Shares in an ETF, Diamonds Trust Series I, that track the Dow Jones Industrial Average. The fund is structured as a unit investment trust.
Discount to NAV
Unlike regular open-end mutual funds, which are bought and sold directly from the fund company at the net asset value (NAV) of their portfolio securities, ETFs and closed-end funds trade at prices determined by the market forces of supply and demand. A fund that trades at a price less than its NAV is said to trade at a discount to its NAV.
Exchange-traded fund (ETF)
The broad class of funds, excluding closed-end funds, which trade throughout the day over an exchange. ETFs have low annual expenses, but you must pay commissions to trade them. ETFs do not redeem shares for cash, and thus do not need to sell securities (possibly realizing capital gains) to pay investors who redeem their shares. They are typically more tax-efficient than mutual funds. Unlike closed-end funds, ETFs market prices usually closely track their NAVs. Most ETFs are index funds.
Expense ratio
The annual fee that all funds or ETFs charge their shareholders, expressed as a percentage of the fund's average daily net assets. This ratio includes such items as the management fee, trustee's fee, license fee, and 12b-1 fee, among others. It does not include the commissions you must pay to buy and sell ETF shares, or the costs incurred by the fund in trading its securities. HOLDRs do not express their fees as expense ratios, but instead charge a flat quarterly fee per 100 shares.
iShares
A group of ETFs advised and marketed by BlackRock Global Investors. iShares are structured as open-end mutual funds.
HOLDRs
Holding company depository receipts, a type of ETF marketed by Merrill Lynch. Unlike other ETFs, HOLDRs can only be bought and sold in 100-share increments. HOLDRs do not have creation units like other ETFs, but investors may exchange 100 shares of a HOLDR for its underlying stocks at any time. Existing HOLDRs focus on narrow industry groups. Each initially owns 20 stocks, but they are unmanaged, and so can become more concentrated due to mergers, or the disparate performance of their holdings.
Market return
The total return of an ETF based on its market price at the beginning and end of the holding period. This may be different from the ETF's NAV return. The market return is the return actually earned by ETF investors, except for those who hold creation units.
Market price
The price of an ETF as determined by the market forces of supply and demand. Unlike regular open-end mutual funds, which are always bought and sold at NAV, the market price may differ from NAV. Most ETFs typically trade at market prices near their NAVs.
Net asset value (NAV)
The value of each share of a fund as determined by the value of its underlying holdings, including any cash in the portfolio. NAV is calculated by dividing a fund's total net assets by its number of shares outstanding. Shares in regular open-end mutual funds are bought and sold at NAV, but shares in ETFs (with the exception of creation units) are bought and sold at the market price, which can differ from NAV.
NAV return
The total return of an ETF, based on its NAV at the beginning and end of the holding period. This may be different from the ETF's market return. The market return, not the NAV return, is the return actually earned by ETF investors, except for those who hold creation units.
Open-end fund
The typical mutual-fund structure, and one used by several groups of ETFs, including iShares and Select Sector Spiders. This structure allows the funds to reinvest their dividends immediately, which could permit them to hold slightly less cash than ETFs that are structured as unit investment trusts.
Premium to NAV
Unlike regular open-end mutual funds, which are bought and sold directly from the fund company at the net asset value (NAV) of their portfolio securities, ETFs and closed-end funds trade at prices determined by the market forces of supply and demand. A fund that trades at a price higher than its NAV is said to trade at a premium to its NAV.
Qubes (QQQ)
The Nasdaq-100 tracking stock, an ETF that tracks the technology-laden Nasdaq-100 index. The popular name, Qubes, derives from the ETF's ticker symbol, QQQ. Qubes are structured as unit investment trusts. Qubes are by far the most heavily traded ETF.
SPDRs
A group of ETFs (managed by SSgA) that track a variety of Standard & Poor’s and other indexes. SPDR Trust, Series 1, usually referred to as "Spiders," tracks the S&P 500 Index. Select Sector SPDRs track various sector indexes that carve up the S&P 500 Index into separate industry groups. (SPDR Trust, Series 1, is structured as a unit investment trust, but Select Sector SPDRs are open-end funds.) Other SPDRs track domestic and international stock indexes (such as Dow Jones Wilshire indexes) or particular industry groups or asset classes.
Unit investment trust
A structure used by some ETFs. One important difference between this format and the open-end fund format is that the latter allows ETFs to reinvest dividends immediately, while the former does not. This could result in ETFs that use the unit investment trust structure having a slight cash drag on their performance.
Corrections Site Map Help Advertising Opportunities Licensing Opportunities Glossary Store RSS feed
© Copyright 2014 Morningstar, Inc. All rights reserved. Please read our Terms of Use and Privacy Policy.
Content Partnersblack arrow
Popular Articles by: Title| Date| Author| Collection| Interest| Popularity
Popular Investment Categories by: Topic| Sector| Key Indicators| User Interest| Market Cap| Industry